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Thirty-Year Fixed Rate Mortgage: The traditional 30-year fixed-rate mortgage has a constant interest rate and monthly payments that never change. This may be a good choice if you plan to stay in your home for seven years or longer. If you plan to move within seven years, then adjustable-rate loans are usually cheaper. As a rule of thumb, it may be harder to qualify for fixed-rate loans than for adjustable rate loans. When interest rates are low, fixed-rate loans are generally not that much more expensive than adjustable-rate mortgages and may be a better deal in the long run, because you can lock in the rate for the life of your loan. Twenty-Year also available. Fifteen-Year Fixed Rate Mortgage: This loan is fully amortized over a 15-year period and features constant monthly payments. It offers all the advantages of the 30-year loan, plus a lower interest rate—and you'll own your home twice as fast. The disadvantage is that, with a 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years. This approach is often safer than committing to a higher monthly payment. Ten-Year also available. Adjustable Rate Mortgages (ARM): 1/1 ARM / 3/1 ARM / 5/1 ARM / 7/1 ARM / 10/1 ARM: These increasingly popular ARMs may offer the best of both worlds. Lower interest rates and a fixed payment for a period of time before it adjusts. For example, a 5/1 has a fixed monthly payment and interest for the first five years and then in year 6 turns into a adjustable-rate loan, based on the margin and current index rate which adjusts annually for the remaining 25 years. The longer the fixed rate, the higher the interest rate. It's a good choice for people who expect to move or refinance before or shortly after the adjustment occurs. One-Year ARM: This loan has a rate that is recalculated once a year after the initial fixed rate term. Six-Month ARM: With this loan, the interest rate is recalculated every 6 months. Compared to Annual ARM, the rate is usually lower because the lender is only committing to a rate for 6 months at a time after the initial fixed rate term, so the lender's vulnerability is reduced. One-Month ARM: With this loan, the interest rate is recalculated every month. Compared to 6 month or annual ARM, the rate is considerably lower because the lender is only committing to a rate for one month at a time, so the lender's vulnerability is greatly reduced.
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